Microsoft’s Stance On Office For iPad Costing It $2.5 Billion A Year

Microsoft’s reluctance to develop an iPad variant of its industry-standard Office suite is both well-known and well understood, given that it has its sights set on gatecrashing the new computing environment with its own Surface Pro tablet, but its hardline stance could be costing it as much as $2.5 billion a year in lost revenues.

Adam Holt, a senior analyst with Morgan Stanley, argues that while Microsoft has rigidly stuck to its guns so far, the widespread popularity of iOS devices may ultimately prove to be just too tempting for the software company to ignore, especially if sales of its Surface tablet don’t pick up any time soon. The Surface RT tablet has largely failed to capture the public’s imagination, selling just 1 million units worldwide during the last quarter of 2012, and even if the company does manage to do better with its Surface Pro, Microsoft would be lucky to command 10% of the tablet market this year, says Holt.

Looking at this wider picture, it’s easy to see why Microsoft is following this plan. By refusing to let the iPad have Office, its Windows 8 tablets gain an exclusivity boost that could help them to corner a bigger share of the market. But according to Holt, this plan is costing Microsoft big time – as much as $2.5 million a year, which is almost half as much as what Microsoft makes on Office annually.

Holt’s figures are certainly debatable. For one thing, he’s assuming a 30% adoption rate among iPad users, which he justifies solely on the adoption rate of Office on Apple Mac computers, about 30% – 40%. That might make sense at a first glance, but when we consider that the attach rate of Office on Windows machines is only 10% to 15%, one can’t help but wonder if Holt should put more thought into this.

But whether his sums are right or wrong, Holt’s analysis certainly illustrates the difficult position Microsoft is in right now – on the one hand, it can abandon the single-biggest advantage it has over its competitors in the tablet stakes, or it can hold onto it and hope that enterprises will ultimately embrace Windows 8 devices as the only enterprise solution.

Writing in the Wall Street Journal, Matthew Lynley believes that Microsoft could be risking Office’s future growth if it continues to keep “the umbilical cord with Windows intact”. Lynley suggests that Microsoft’s dilemma is similar to the one faced by Apple when it found that its mobile devices were growing at the expense of its Mac books – ultimately Apple decided to cannibalize its Macs as the iPhone and iPad’s popularity increased. For Microsoft, the danger is that if it develops Office for iOS and/or Android, it risks further damaging the PC ecosystem that has served it so well, for so long. But on the other hand, should Microsoft continue to hold back, it could eventually find itself being overtaken by competitors.

For now, it would seem that Microsoft has no intention of changing its stance. Steve Ballmer himself said in not-so-many words that Office is unlikely to appear on iOS anytime soon in a recent interview with BusinessWeek. Meanwhile, SiliconANGLE’s Contributing Editor John Casaretto argues that iPads and Android tablets don’t even belong in the enterprise anyway, and tells iPad users to forget all about Office ever coming to iOS.